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October 21, 1987 NY
Times
THE MARKET TURMOIL: PAST
LESSONS, PRESENT ADVICE; Did '29 Crash Spark The Depression?
In the 58 years since the frightening stock market crash
of 1929, the panic of that October day has come to serve as a symbol of the economic contraction that
gripped the world during the next decade. Yet historians and economists still differ over whether the
collapse of share prices caused the international catastrophe known as the Great Depression or simply
reflected the underlying weakness of the domestic economy.
''The Depression did not
begin the day of the crash of 1929,'' said Ben S. Bernanke, a professor of economics and
public affairs at the Woodrow Wilson School at Princeton University. ''It took a series of
unrelated international financial events in late 1930 and early '31 to turn what had been a
normal recession into a panic.''
Though stock market investors refused to
acknowledge any possibility other than limitless increases in share prices, warning clouds had risen
over the horizon months before the crash. Bond prices began to retreat in the spring, and in May
Congress adopted the Smoot-Hawley tariff law, establishing a wall of protectionism around the
nation.
''That exacerbated the problem by preventing Europeans from selling enough goods in the
United States to earn enough dollars to pay off their debts from World War I,'' said Thomas
K. McCraw, a professor at the Harvard Business School. ''But those effects did not show up
immediately.''
The value of New York Stock Exchange shares dropped nearly 25 percent
between the morning of Oct. 28, 1929, and the afternoon of the next day. But prices started to
recover on Oct. 30, and by the end of 1929, the Dow Jones industrial average had returned to within a
few percentage points of its record.
Not until early 1931 did the stock market enter the
prolonged slump that two years later left the Dow average at less than 11 percent of its
peak.
''The real disaster started in December 1930, with the failure of a private
bank with an unfortunate name, the Bank of the United States,'' Professor Bernanke said.
Though the institution had no relationship to the Federal Government, the story of its collapse
helped set off a panic among small depositors.
''The bottom fell out in June of
1931, nearly two years after the stock market crash,'' he said. During the next two years,
a worldwide financial panic touched off political and social upheaval from Central Europe to North
America to the Far East.
By 1930, most government officials and business leaders were
predicting that the worst was over.
''Hoover preached that welfare was a
responsibility that should be taken care of by charitable organizations at the local
level,'' Mr. Garraty said. ''The Administration offered farmers loans to buy seed
but not to buy food.''
With banks collapsing one after another, the money supply
evaporated and the number of bankruptcies soared. Waves of panic washed across the
nation.
Still, most academic experts agree on one aspect of the crash: It wiped out billions
of dollars of wealth in one day, and this immediately depressed consumer
buying.
''If you look at sales of consumer goods, particularly radios or
automobiles, you will see they fell dramatically,'' said John Kenneth Galbraith, a retired
professor of economics at Harvard. ''The crash had the impact of glass shattering, and
while other more essential factors took over as the Depression wore on - universal fear, the slump in
agricultural production because of drought, the decline in business investment - it is hard to argue
that the collapse of the market did not start things in motion.''
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1.
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According to the first paragraph, the cause of the Great Depression was
____
A | definitely the Crash | C | world catastrophe | B | possibly the unstable
economy | D | because of
inflation |
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2.
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Exacerbated in paragraph #4 most likely means___
A | made simple | C | made urgent | B | made wider | D | made worse |
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3.
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Why did the author refer to Ben Bernanke in the article?
A | He was present at the Crash | C | He is an expert on
economics | B | He is Woodrow Wilson’s advisor | D | He is an expert on the
1920s |
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4.
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The “bottom fell out” in paragraph means ____
A | went down a lot | C | was serious | B | emptied out | D | became nothing |
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5.
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What was the main argument of the article
A | The stock market crash caused the Great Depression. | B | Underlying economic problems causes
the Great Depression. |
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IDENTIFYING MAIN IDEAS
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6.
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Throughout most of the 1920s, Americans were generally _______________
A | worried that the stock market would crash. | B | confident that
business would bring continued prosperity. | C | delighted that wealth was evenly
distributed. | D | concerned with economic danger signs. |
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7.
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One sign that the economy might be weakening in the 1920s was
____________
A | uneven distribution of national wealth. | B | underproduction of
consumer goods. | C | an increase in personal savings. | D | the collapse of large
corporations. |
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8.
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When the Dow Jones Industrial Average began to drop sharply in late October
1929, _______
A | investors bought record shares of stock. | B | bankers pardoned
personal loans and mortgages. | C | President Hoover warned Americans to stop
investing. | D | investors raced to get their money out of the stock
market. |
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9.
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European economies were hurt during the Depression when ___________
A | President Hoover pardoned war debts. | B | Congress lowered tariffs. | C | United States
companies stopped investing in Germany. | D | the United States increased its
exports. |
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10.
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Which statement best describes the American economy in the 1920s?
A | Wages decreased and the economy appeared weak. | B | Unemployment was at
an all-time high. | C | Stock prices rose and the economy appeared healthy. | D | Small businesses
dominated American industry. |
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11.
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Which group faced hard times during much of the 1920s?
A | urban bankers | B | farmers | C | small
investors | D | owners of large corporations |
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12.
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Which of the following was a sign of an unsound economy during the 1920s?
A | Personal debt was decreasing. | B | Wages were keeping pace with
production. | C | More goods were being produced than consumers could buy. | D | The Dow Jones
Industrial Average was steady. |
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13.
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How did most investors react to a sudden fall in stock prices in 1929?
A | They called in their loans. | B | They pooled money to buy
stock. | C | They raced to sell their stocks. | D | They pledged their stocks as
collateral. |
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14.
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Not long after Black Tuesday, the stock market crash was affecting
________
A | only those who had invested heavily in stocks. | B | wealthy
industrialists almost exclusively. | C | millions of Americans, many of whom had never
owned stocks. | D | mainly stockbrokers and banks. |
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15.
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The Crash led to ____________
A | increased factory production. | B | a brief period of rising
profits. | C | higher farm prices. | D | unemployment for millions of
workers. |
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16.
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After the Crash, thousands of American banks closed, because they
__________
A | had to print new money. | B | could not return depositors’
money. | C | had invested in European banks. | D | charged too high an interest
rate. |
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17.
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One of the underlying causes of the Great Depression was the United
States’s _________
A | lack of farmers. | B | lack of speculators. | C | unstable
government. | D | unstable economy. |
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Short Answer
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18.
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What should be done to prevent another Depression?
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